3. Obligation to disclose any conflict of interest
The licence holder must avoid placing himself in a conflict of interest in all circumstances and at all times.1 A conflict of interest exists when one's own interests (financial or other) are at odds with those of the represented party.
It’s only in exceptional cases that a licensee may find himself in a conflict-of-interest situation, since as soon as he faces a potential conflict-of-interest situation, he must actively take steps to avoid it.
The law provides that in these exceptional cases, i.e. when the broker cannot avoid placing himself in a conflict-of-interest situation, he is required to disclose it to the parties involved.2
It is important to note that the law does not give the licence holder the choice between avoiding or disclosing a conflict of interest; the licensee must avoid any conflict of interest at all times.
The obligation to disclose is not an option or an opportunity for the licence holder. It is not meant to provide a loophole that prevents the licence holder from committing an ethical breach.
Even if a conflict of interest has been disclosed by the licence holder, he remains in a conflict-of-interest situation. The licensee has an obligation to disclose any conflict of interest in order to protect the parties involved, by informing them of the fact that his judgment, advice and actions could be influenced, even unconsciously, by personal considerations that are to their disadvantage.
When a licence holder finds himself in a conflict of interest, not only must he disclose it, but he must also inform his client of the latter’s right to terminate the brokerage contract or mandate with him and seek representation by another broker of his choice. The client must be able to completely trust the real estate broker he has chosen. In fact, even if a conflict is disclosed, the client may feel less comfortable or more concerned. This is why he must be given the option to terminate his relationship with the real estate broker who is in a conflict of interest.
The conflict of interest disclosure must be done in writing without delay. The purpose of these two obligations is to provide better public protection.
1-2 Section 2 of the Regulation respecting brokerage requirements, professional conduct of brokers and advertising
For the purpose of disclosing a conflict of interest that a licensee cannot avoid, the information must be provided in writing to the parties involved, including:
- the broker’s name and licence number;
- the name and contact information of the seller/buyer placing the broker in a conflict of interest;
- the object of the brokerage contract (address of the immovable, company name, contract number);
- a description of the conflict of interest;
- the reasons why the broker is unable to avoid the conflict of interest.
*No particular format is required by the OACIQ to disclose a conflict of interest. The important thing is that the disclosure be made in writing and without delay, as prescribed by the Act (S. 2 RBR). A proof of receipt or signature by the client of the disclosure must be kept in the broker’s record.
Some licensees use the Notice of disclosure - Purchase-Sale-Exchange form with certain adaptations to disclose a conflict of interest. However, this form was designed to disclose the licensee status of the broker and the nature of his interest in the transaction, when he is himself directly or indirectly involved financially in a real estate transaction and not to disclose a conflict of interest.
The duty to disclose a conflict of interest must not be confused with the duty to disclose the status of the licensee involved in a transaction as a party. In the latter case, the licensee is not in a conflict of interest if he does not represent the party with whom he is dealing.
EXAMPLE 1
A major client with whom a real estate broker has made several purchase transactions in the past wants to purchase an immovable on which the same broker has a brokerage contract to sell. The real estate broker could be tempted to favour this important client, both for the client’s benefit and also because of the business relationship that he has an interest in maintaining and developing. The real estate broker could not have foreseen that his client would be interested in this listing before signing the brokerage contract. He cannot therefore be blamed for having agreed to act for the seller.
What the broker must do in this situation
- To ensure that the real estate broker can objectively protect and promote the interests of his selling client and also give his “regular” client the benefit of being properly advised and represented, he must recommend that the latter seek representation by another real estate broker. Both clients will then be able to trust that they benefit from independent advice.
- Also, in order to ensure transparency and honesty, the real estate broker must inform his selling client not only that he knows the buyer, but also that the latter is one of his regular clients. The broker must therefore give his selling client the option of either terminating or maintaining the brokerage contract, being fully apprised of the facts.
EXAMPLE 2
Two buyers are represented by the same broker and want to make an offer to purchase the same property. This situation was not foreseeable at the beginning since the brokerage contracts to purchase were not related to a specific property. These brokerage contracts described the buyers' needs and criteria.
What the broker must do in this situation
- To avoid placing himself in a conflict of interest and to remain independent, objective and loyal, he must inform the second buyer who wishes to make an offer to purchase on the same property that he cannot represent him because he already represents a buyer who made an offer to purchase the same property.
- To respect his duty of loyalty and to ensure the confidentiality of the strategies toward each of the buyers bound by a brokerage contract to purchase, he shall refer the buyer to another broker to represent his interests as part of an offer to purchase on the property in question.
EXAMPLE 3
A seller represented by a broker accepted an offer to purchase from an unrepresented buyer with a condition to sell his own property (R2.1). The buyer wishes to sign a brokerage contract to sell his own home with the seller's broker ( to fulfill the condition R2.1). The broker must avoid placing himself in a conflict of interest and therefore cannot represent the buyer. Indeed, the broker cannot represent the interests of both parties since he would not be able to fulfill his obligations of loyalty and confidentiality of personal and strategic information of both parties. He could, for example, favour the interests of the selling client by advising his buying client to accept an offer to purchase that would not be to his advantage.
